Why Syndicators Keep Talking About Bonus Depreciation
If you're an accredited investor, you are probably accustomed to receiving multiple offers a week asking you to invest in some gizmo or widget or whatever. Perhaps you're seeing a lot of talk about bonus depreciation ending in 2022. Have you asked yet why syndicators keep talking about bonus depreciation?
In today's article, I'll cover some basics. First, know that I am neither a licensed CPA nor a qualified tax intermediary. It is really important that you discuss the implications of bonus depreciation with your tax professional.
Let's start by recognizing one of the greatest benefits of investing in real estate. Depreciation. That's it. It's a magic IRS formula for "hiding" income legally. That sounds terrible, but the reality is that the IRS and the government have a vested interest in people owning real estate. It means that the population pays property taxes. Cities, counties, states, and the government all need tax revenue.
In 2017, Congress passed the Tax Cuts and Jobs Act which applied to depreciable business assets. This works for any type of business with assets that depreciate in less than 20 years as well as qualified property (including used property) placed in service after Sept 27, 2017.
IRS FAQ - Additional First Year Depreciation Deduction https://www.irs.gov/newsroom/additional-first-year-depreciation-deduction-bonus-faq
With the right accounting strategies, including cost segregation and others, this 100% bonus depreciation can offset big gains as it has the potential on a multi-family investment to show a very large loss in year one. We have a couple of assets estimating 60-80% of the invested capital showing up as a loss in year one. That can be significant when you have other gains to offset.
December of 2022 is the last time this full 100% of bonus depreciation is available. The IRS is entering into a phase-out over the next few years.
80% for property placed in service Jan 1, 2023 - Dec 31, 2023
60% for property placed in service Jan 1, 2024 - Dec 31, 2024
40% for property placed in service Jan 1, 2025 - Dec 31, 2025
20% for property placed in service Jan 1, 2026 - Dec 31, 2026
By 2027, the phase-out will be complete and no more bonus depreciation will be offered. This is a big incentive to boost the economy and invest in businesses and infrastructure to keep the American economy humming along.
For investors, it creates a great pathway to save big money on taxes.
If you are considering an investment for 2022, dislike the current stock market conditions, or want to create passive income and growth with big tax advantages, we have two deals we've already closed in Q3 and positions are still available.